Information on 401ks

401k plans can be a terrific way of saving up some extra money for your retirement. They give you a way to invest your money without being taxed to death. If you decide to take full advantage of this plan below are some information on 401ks which can help you out.

1. Tax Free Now

401k deposits are taken out of your paycheck befor you are taxed. This allows you to not only avoid paying taxes on it but to lower your tax bracket and pay a smaller percentage of your money to the taxman. It is always nice so take advantage of it.

2. Maximum Contribution

All plans have a maximum 401k contribution on the amount that you are allowed to invest into your plan every year. For instance in 2010 you can contribute a maximum of $16,500 into a 401k. If you happen to be over the age of 50 you also qualify for the catch up bonus which allows you to invest an additional $5,500 into the plan.

3. You Can Roll it over

If you are switching jobs or just want to take advantage of the investment options of an IRA one thing you can do is called a 401k to IRA rollover. In this case you are given money from your account and will have 60 days to deposit it into an IRA.

You will eventually have to take the money out if you ever plan to use it, but when you do you will be hit with taxes. As a general note, money can be deposited and invested in the plan tax free, but once you take it out it will be time to pay for it.

The rules on 401k withdraws make it pretty inconvenient to take out an early withdraw. Any money that is taken out before you reach the age of 59 ½ is subject to a 10% early withdrawal penalty in addition to taxes.

This entry was posted
on Tuesday, March 30th, 2010 at 1:36 am and is filed under investing, stocks, Uncategorized.
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